1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 11-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _________________
COMMISSION FILE NUMBER 1-3187
A. Full title of the plan and address of the plan, if different from that of the
issuer named below:
HOUSTON INDUSTRIES INCORPORATED
SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
HOUSTON INDUSTRIES INCORPORATED
1111 LOUISIANA STREET
HOUSTON, TEXAS 77002
2
TABLE OF CONTENTS
Independent Auditors' Report Page 1
Financial Statements:
Statement of Net Assets Available for Benefits, December 31, 1997 Page 2
Statement of Net Assets Available for Benefits, December 31, 1996 Page 3
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 1997 Page 4
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 1996 Page 5
Notes to Financial Statements for the Years Ended December 31, 1997 and 1996 Page 6
Supplemental Schedules:
Supplemental Schedule of Investments, December 31, 1997 (Item 27a) Page 12
Supplemental Schedule of 5% Reportable Transactions for the Year Ended
December 31, 1997 (Item 27d) Page 14
Pursuant to Item 4 of Form 11-K, the financial statements and schedules
referred to above have been prepared in accordance with regulations of the
Employee Retirement Income Security Act of 1974.
3
INDEPENDENT AUDITORS' REPORT
Houston Industries Incorporated Savings Plan:
We have audited, by fund and in total, the accompanying financial statements of
the Houston Industries Incorporated Savings Plan (the "Plan") as of December 31,
1997 and 1996 and for the years then ended, listed in the Table of Contents.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, by fund and in total,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedules,
listed in the Table of Contents, are presented for the purpose of additional
analysis and are not a required part of the basic financial statements, but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These schedules are the responsibility of the Plan's
management. Such schedules have been subjected to the auditing procedures
applied in our audit of the basic 1997 financial statements and, in our opinion,
are fairly stated in all material respects when considered in relation to the
basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Houston, Texas
June 24, 1998
4
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
PARTICIPANT INVESTMENT FUNDS
--------------------------------------------------------------------------------------------------
HII CAPITAL GROWTH &
COMMON APPRECIATION INCOME INTERNATIONAL
STOCK ALLOCATED EQUITY EQUITY EQUITY BALANCED
FUND ESOP FUND FUND FUND FUND
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
INVESTMENTS
Common Stock $ 338,664,722 $ 125,867,057
Mutual Funds $ 76,615,551 $ 93,016,707 $ 25,659,496 $ 34,732,269
Cash Equivalents 2,003,994 1,039,573
Other Assets
------------- ------------- ------------- ------------- ------------- -------------
Total 340,668,716 126,906,630 76,615,551 93,016,707 25,659,496 34,732,269
------------- ------------- ------------- ------------- ------------- -------------
RECEIVABLES
Dividends and Interest 4,754,337 1,796,895 91,650
Investment Sales 1,818,574
Contributions
Employer 262,752
Participants 108,896 127,140 143,754 54,336 54,915
------------- ------------- ------------- ------------- ------------- -------------
Total 4,863,233 2,059,647 127,140 1,962,328 54,336 146,565
------------- ------------- ------------- ------------- ------------- -------------
TOTAL ASSETS 345,531,949 128,966,277 76,742,691 94,979,035 25,713,832 34,878,834
------------- ------------- ------------- ------------- ------------- -------------
LIABILITIES
PAYABLES
Administrative Expenses (5,895) (2,407) (1,720) (2,041) (835) (990)
Interest on ESOP Loans
from Company
ESOP Loans from Company
------------- ------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES (5,895) (2,407) (1,720) (2,041) (835) (990)
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS AVAILABLE
FOR BENEFITS $ 345,526,054 $ 128,963,870 $ 76,740,971 $ 94,976,994 $ 25,712,997 $ 34,877,844
============= ============= ============= ============= ============= =============
PARTICIPANT INVESTMENT FUNDS
-------------------------------------------------------------------------------------------------
FIXED MONEY
INCOME MARKET PARTICIPANT UNALLOCATED
FUND FUND LOANS TOTAL ESOP TOTAL
------------- ------------ ------------ ------------- ------------- --------------
ASSETS
INVESTMENTS
Common Stock $ 464,531,779 $ 330,619,455 $ 795,151,234
Mutual Funds $ 7,712,680 237,736,703 237,736,703
Cash Equivalents $ 28,962,593 32,006,160 4,671,858 36,678,018
Other Assets $ 30,437,985 30,437,985 30,437,985
------------- ------------ ------------ ------------- ------------- --------------
Total 7,712,680 28,962,593 30,437,985 764,712,627 335,291,313 1,100,003,940
------------- ------------ ------------ ------------- ------------- --------------
RECEIVABLES
Dividends and Interest 41,191 141,577 6,825,650 4,611,125 11,436,775
Investment Sales 1,818,574 1,818,574
Contributions
Employer 262,752 262,752
Participants 11,505 28,971 529,517 529,517
------------- ------------ ------------ ------------- ------------- --------------
Total 52,696 170,548 9,436,493 4,611,125 14,047,618
------------- ------------ ------------ ------------- ------------- --------------
TOTAL ASSETS 7,765,376 29,133,141 30,437,985 774,149,120 339,902,438 1,114,051,558
------------- ------------ ------------ ------------- ------------- --------------
LIABILITIES
PAYABLES
Administrative Expenses (513) (908) (15,309) (15,309)
Interest on ESOP Loans
from Company (7,119,607) (7,119,607)
ESOP Loans from Company (248,301,638) (248,301,638)
------------- ------------ ------------ ------------- ------------- --------------
TOTAL LIABILITIES (513) (908) (15,309) (255,421,245) (255,436,554)
------------- ------------ ------------ ------------- ------------- --------------
NET ASSETS AVAILABLE
FOR BENEFITS $ 7,764,863 $ 29,132,233 $ 30,437,985 $ 774,133,811 $ 84,481,193 $ 858,615,004
============= ============ ============ ============= ============= ==============
See notes to financial statements.
2
5
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1996
PARTICIPANT INVESTMENT FUNDS
-----------------------------------------------------------------------------------------------------
HII CAPITAL GROWTH &
COMMON APPRECIATION INCOME INTERNATIONAL
STOCK ALLOCATED EQUITY EQUITY EQUITY BALANCED
FUND ESOP FUND FUND FUND FUND
------------ ------------ ----------- ----------- ----------- -----------
ASSETS
INVESTMENTS
Common Stock $333,934,344 $114,282,178
Mutual Funds $65,790,169 $75,017,780 $26,159,342 $35,745,324
Cash Equivalents 2,355,261 490,550
Other Assets
------------ ------------ ----------- ----------- ----------- -----------
Total 336,289,605 114,772,728 65,790,169 75,017,780 26,159,342 35,745,324
------------ ------------ ----------- ----------- ----------- -----------
RECEIVABLES
Dividends and Interest 5,466,007 1,909,245 455,610 91,171
Fund Transfers (213,432) 101,746 36,721 (2,853) 77,818
Investment Sales 914,887
Contributions
Employer 360,861
Participants 203,283 157,889 159,332 72,825 80,271
------------ ------------ ----------- ----------- ----------- -----------
Total 5,455,858 3,184,993 259,635 196,053 525,582 249,260
------------ ------------ ----------- ----------- ----------- -----------
TOTAL ASSETS 341,745,463 117,957,721 66,049,804 75,213,833 26,684,924 35,994,584
------------ ------------ ----------- ----------- ----------- -----------
LIABILITIES
PAYABLES
Administrative Expenses (6,151) (2,411) (1,618) (1,776) (916) (1,087)
Interest on ESOP Loans
from Company
ESOP Loans from Company
------------ ------------ ----------- ----------- ----------- -----------
TOTAL LIABILITIES (6,151) (2,411) (1,618) (1,776) (916) (1,087)
------------ ------------ ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE
FOR BENEFITS $341,739,312 $117,955,310 $66,048,186 $75,212,057 $26,684,008 $35,993,497
============ ============ =========== =========== =========== ===========
PARTICIPANT INVESTMENT FUNDS
----------------------------------------------------------------------------------------------
FIXED MONEY
INCOME MARKET PARTICIPANT UNALLOCATED
FUND FUND LOANS TOTAL ESOP TOTAL
---------- ----------- ----------- ------------ ----------- ------------
ASSETS
INVESTMENTS
Common Stock $448,216,522 $302,285,476 $750,501,998
Mutual Funds $7,862,009 210,574,624 210,574,624
Cash Equivalents $33,065,117 35,910,928 3,542,777 39,453,705
Other Assets $37,306,740 37,306,740 37,306,740
---------- ----------- ----------- ------------ ----------- ------------
Total 7,862,009 33,065,117 37,306,740 732,008,814 305,828,253 1,037,837,067
---------- ----------- ----------- ------------ ----------- ------------
RECEIVABLES
Dividends and Interest 42,538 153,169 8,117,740 4,643,797 12,761,537
Fund Transfers
Investment Sales 914,887 914,887
Contributions
Employer 360,861 360,861
Participants 16,296 44,072 733,968 733,968
---------- ----------- ----------- ------------ ----------- ------------
Total 58,834 197,241 10,127,456 4,643,797 14,771,253
---------- ----------- ----------- ------------ ----------- ------------
TOTAL ASSETS 7,920,843 33,262,358 37,306,740 742,136,270 310,472,050 1,052,608,320
---------- ----------- ----------- ------------ ----------- ------------
LIABILITIES
PAYABLES
Administrative Expenses (599) (1,048) (15,606) (15,606)
Interest on ESOP Loans
from Company (4,634,564) (4,634,564)
ESOP Loans from Company (268,686,244) (268,686,244)
---------- ----------- ----------- ------------ ----------- ------------
TOTAL LIABILITIES (599) (1,048) 0 (15,606) (273,320,808) (273,336,414)
---------- ----------- ----------- ------------ ----------- ------------
NET ASSETS AVAILABLE
FOR BENEFITS $7,920,244 $33,261,310 $37,306,740 $742,120,664 $37,151,242 $779,271,906
========== =========== =========== ============ =========== ============
See notes to financial statements.
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6
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
PARTICIPANT INVESTMENT FUNDS
-----------------------------------------------------------------------------------------------
HII CAPITAL GROWTH &
COMMON APPRECIATION INCOME INTERNATIONAL
STOCK ALLOCATED EQUITY EQUITY EQUITY BALANCED
FUND ESOP FUND FUND FUND FUND
------------- ------------- ------------ ------------ ------------ ------------
INVESTMENT INCOME
Dividends
Common Stock $ 20,517,489 $ 7,644,282
Mutual Funds $ 1,225,483 $ 3,003,484 $ 175,869 $ 1,302,781
Interest
NET APPRECIATION
IN FAIR VALUE OF INVESTMENTS 50,357,694 18,909,106 15,766,743 19,662,247 2,103,474 3,782,020
------------- ------------- ------------ ------------ ------------ ------------
Total 70,875,183 26,553,388 16,992,226 22,665,731 2,279,343 5,084,801
------------- ------------- ------------ ------------ ------------ ------------
CONTRIBUTIONS
Participants 9,736,936 6,505,232 7,031,322 2,944,829 2,826,070
Employers
Allocations of ESOP Stock 15,664,412
Cash 453,639
ESOP Contributions
------------- ------------- ------------ ------------ ------------ ------------
Total 9,736,936 16,118,051 6,505,232 7,031,322 2,944,829 2,826,070
------------- ------------- ------------ ------------ ------------ ------------
FUND TRANSFERS (21,019,752) (283,653) 5,896,525 14,370,354 322,314 (679,637)
ADMINISTRATIVE EXPENSES (92,166) (753) (18,815) (22,094) (9,986) (11,310)
------------- ------------- ------------ ------------ ------------ ------------
TRANSFER TO STPNOC (33,919,460) (24,081,169) (14,950,572) (18,394,982) (5,148,850) (6,080,629)
BENEFIT PAYMENTS (21,793,999) (7,297,304) (3,731,811) (5,885,394) (1,358,661) (2,254,948)
------------- ------------- ------------ ------------ ------------ ------------
INTEREST ON ESOP LOANS
------------- ------------- ------------ ------------ ------------ ------------
CHANGE IN NET ASSETS
AVAILABLE FOR BENEFITS 3,786,742 11,008,560 10,692,785 19,764,937 (971,011) (1,115,653)
------------- ------------- ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE
FOR BENEFITS:
BEGINNING OF YEAR 341,739,312 117,955,310 66,048,186 75,212,057 26,684,008 35,993,497
------------- ------------- ------------ ------------ ------------ ------------
END OF YEAR $ 345,526,054 $ 128,963,870 $ 76,740,971 $ 94,976,994 $ 25,712,997 $ 34,877,844
============= ============= ============ ============ ============ ============
PARTICIPANT INVESTMENT FUNDS
----------------------------------------------------------------------------------------------
FIXED MONEY
INCOME MARKET PARTICIPANT UNALLOCATED
FUND FUND LOANS TOTAL ESOP TOTAL
----------- ------------- ------------ ------------- ------------- ------------
INVESTMENT INCOME
Dividends
Common Stock $ 28,161,771 $ 19,260,588 $ 47,422,359
Mutual Funds $ 484,565 6,192,182 6,192,182
Interest $ 1,763,644 $ 3,154,971 4,918,615 4,918,615
NET APPRECIATION
IN FAIR VALUE OF INVESTMENTS 46,129 110,627,413 49,289,685 159,917,098
----------- ------------- ------------ ------------- ------------- ------------
Total 530,694 1,763,644 3,154,971 149,899,981 68,550,273 218,450,254
----------- ------------- ------------ ------------- ------------- ------------
CONTRIBUTIONS
Participants 577,443 1,871,287 31,493,119 31,493,119
Employers
Allocations of ESOP Stock 15,664,412 (15,664,412)
Cash 453,639 453,639
ESOP Contributions 19,431,067 19,431,067
---------- ------------- ------------ ------------- ------------- ------------
Total 577,443 1,871,287 47,611,170 3,766,655 51,377,825
----------- ------------- ------------ ------------- ------------- ------------
FUND TRANSFERS 559,289 834,560
ADMINISTRATIVE EXPENSES (5,827) (10,644) (171,595) (171,595)
----------- ------------- ------------ ------------- ------------- ------------
TRANSFER TO STPNOC (886,193) (2,984,272) (7,404,652) (113,850,779) (113,850,779)
BENEFIT PAYMENTS (930,787) (5,603,652) (2,619,074) (51,475,630) (51,475,630)
----------- ------------- ------------ ------------- ------------- ------------
INTEREST ON ESOP LOANS (24,986,977) (24,986,977)
----------- ------------- ------------ ------------- ------------- ------------
CHANGE IN NET ASSETS
AVAILABLE FOR BENEFITS (155,381) (4,129,077) (6,868,755) 32,013,147 47,329,951 79,343,098
----------- ------------- ------------ ------------- ------------- ------------
NET ASSETS AVAILABLE
FOR BENEFITS:
BEGINNING OF YEAR 7,920,244 33,261,310 37,306,740 742,120,664 37,151,242 779,271,906
----------- ------------- ------------ ------------- ------------- ------------
END OF YEAR $ 7,764,863 $ 29,132,233 $ 30,437,985 $ 774,133,811 $ 84,481,193 $858,615,004
=========== ============= ============ ============= ============= ============
See notes to financial statements.
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7
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1996
PARTICIPANT INVESTMENT FUNDS
------------------------------------------------------------------------------------------------
HII CAPITAL GROWTH &
COMMON APPRECIATION INCOME INTERNATIONAL
STOCK ALLOCATED EQUITY EQUITY EQUITY BALANCED
FUND ESOP FUND FUND FUND FUND
------------- ------------- ------------ ------------ ------------ ------------
INVESTMENT INCOME
Dividends
Common Stock $ 21,705,280 $ 7,036,833
Mutual Funds $ 6,993,538 $ 4,408,329 $ 1,216,654 $ 2,192,818
Interest 160,910 68,511 1,083 971 822 246
NET APPRECIATION/(DEPRECIATION)
IN FAIR VALUE OF INVESTMENTS (22,903,279) (7,014,195) 3,375,322 10,056,097 2,127,932 1,950,618
------------- ------------- ------------ ------------ ------------ ------------
Total (1,037,089) 91,149 10,369,943 14,465,397 3,345,408 4,143,682
------------- ------------- ------------ ------------ ------------ ------------
CONTRIBUTIONS
Participants 11,293,307 6,158,051 6,159,840 2,951,368 3,134,909
Employer
Allocations of ESOP Stock 15,755,612
Cash 264,873 748,189 5,668 10,120 10,091 2,887
ESOP Contributions
------------- ------------- ------------ ------------ ------------ ------------
Total 11,558,180 16,503,801 6,163,719 6,169,960 2,961,459 3,137,796
------------- ------------- ------------ ------------ ------------ ------------
INTEREST ON PARTICIPANT
LOANS
------------- ------------- ------------ ------------ ------------ ------------
FUND TRANSFERS (3,484,433) 2,988,079 2,341,335 1,290,509 (2,042,818)
------------- ------------- ------------ ------------ ------------ ------------
ADMINISTRATIVE EXPENSES (105,132) (85) (17,820) (18,968) (10,657) (12,971)
------------- ------------- ------------ ------------ ------------ ------------
BENEFIT PAYMENTS (28,434,422) (7,513,434) (3,861,226) (4,382,896) (1,615,933) (2,765,622)
------------- ------------- ------------ ------------ ------------ ------------
INTEREST ON ESOP LOANS
------------- ------------- ------------ ------------ ------------ ------------
CHANGE IN NET ASSETS
AVAILABLE FOR BENEFITS (21,502,896) 9,081,431 15,642,695 18,574,828 5,970,786 2,460,067
------------- ------------- ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE
FOR BENEFITS:
BEGINNING OF YEAR 363,242,208 108,873,879 50,405,491 56,637,229 20,713,222 33,533,430
------------- ------------- ------------ ------------ ------------ ------------
END OF YEAR $ 341,739,312 $ 117,955,310 $ 66,048,186 $ 75,212,057 $ 26,684,008 $ 35,993,497
============= ============= ============ ============ ============ ============
PARTICIPANT INVESTMENT FUNDS
-----------------------------------------------------------------------------------------------
FIXED MONEY
INCOME MARKET PARTICIPANT UNALLOCATED
FUND FUND LOANS TOTAL ESOP TOTAL
------------ ------------ ------------ ------------- ------------ -------------
INVESTMENT INCOME
Dividends
Common Stock $ 28,742,113 $ 20,366,903 $ 49,109,016
Mutual Funds $ 495,978 15,307,317 15,307,317
Interest 26 $ 1,893,031 2,125,600 21,874 2,147,474
NET APPRECIATION/(DEPRECIATION)
IN FAIR VALUE OF INVESTMENTS (122,126) (12,529,631) (23,456,686) (35,986,317)
------------ ------------ ------------ ------------- ------------ -------------
Total 373,878 1,893,031 33,645,399 (3,067,909) 30,577,490
------------ ------------ ------------ ------------- ------------ -------------
CONTRIBUTIONS
Participants 641,254 2,394,011 32,732,740 32,732,740
Employer
Allocations of ESOP Stock 15,755,612 (15,755,612)
Cash 978 89,323 1,132,129 1,132,129
ESOP Contributions 15,529,316 15,529,316
------------ ------------ ------------ ------------- ------------ -------------
Total 642,232 2,483,334 49,620,481 (226,296) 49,394,185
------------ ------------ ------------ ------------- ------------ -------------
INTEREST ON PARTICIPANT
LOANS $ 3,017,426 3,017,426 3,017,426
------------ ------------ ------------ ------------- ------------ -------------
FUND TRANSFERS (516,982) (2,175,785) 1,600,095
------------ ------------ ------------ ------------- ------------ -------------
ADMINISTRATIVE EXPENSES (7,294) (13,335) (186,262) (186,262)
------------ ------------ ------------ ------------- ------------ -------------
BENEFIT PAYMENTS (1,179,256) (7,457,934) (57,210,723) (57,210,723)
------------ ------------ ------------ ------------- ------------ -------------
INTEREST ON ESOP LOANS (27,124,320) (27,124,320)
------------ ------------ ------------ ------------- ------------ -------------
CHANGE IN NET ASSETS
AVAILABLE FOR BENEFITS (687,422) (5,270,689) 4,617,521 28,886,321 (30,418,525) (1,532,204)
------------ ------------ ------------ ------------- ------------ -------------
NET ASSETS AVAILABLE
FOR BENEFITS:
BEGINNING OF YEAR 8,607,666 38,531,999 32,689,219 713,234,343 67,569,767 780,804,110
------------ ------------ ------------ ------------- ------------ -------------
END OF YEAR $ 7,920,244 $ 33,261,310 $ 37,306,740 $ 742,120,664 $ 37,151,242 $ 779,271,906
============ ============ ============ ============= ============ =============
See notes to financial statements.
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8
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. ACCOUNTING POLICIES
In accordance with the provisions of the Houston Industries
Incorporated Savings Plan (the "Plan"), the financial records of the
Plan are generally kept and the valuations of accounts of participating
employees ("Participants") are determined on the accrual basis.
The Plan recognizes net appreciation or depreciation in the fair value
of its investments. Investments are reflected at fair value in the
financial statements. Fair value for securities listed on a national
exchange is principally determined using the closing price on the New
York Stock Exchange. Fair value for mutual funds is determined using
net asset value.
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that
affect the reported amounts as well as certain disclosures. The Plan's
financial statements include amounts that are based on management's
best estimates and judgments. Actual results could differ from those
estimates.
Certain 1996 balances have been reclassed to conform to the 1997
presentation.
2. SUMMARY OF THE PLAN
DESCRIPTION OF PLAN
The following description of the Plan provides only general
information. Participants should refer to the Plan document for a more
complete description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan covering all employees of
Houston Industries Incorporated (the "Company")except building trades
workers under a construction industry collective bargaining agreement
providing specifically for retirement benefit payments to be made
thereunder for such building trades workers, leased employees, and
employees on the payroll of NorAm Energy Corp. or any of its divisions
or subsidiaries. It is subject to the provisions of the Employee
Retirement Act of 1974 (ERISA).
PARTICIPANT ACCOUNTS
Each Participant's account is credited with the Participant's
contribution and allocations of (a) the Company's contribution and (b)
Plan earnings and (c) charged with an allocation of administrative
expenses. Allocations are based on Participant earnings or account
balances, as defined. The benefit to which a Participant is entitled is
the benefit that can be provided from the Participant's vested account.
INVESTMENT PROGRAM
The Plan has seven investment funds (Funds), as follows:
HII COMMON STOCK FUND: Invested primarily in shares of common stock of
the Company.
CAPITAL APPRECIATION EQUITY FUND: Invested in a pool of stock mutual
funds that have a goal of long-term growth with no emphasis on current
income. The mutual funds seek to buy stocks of growing companies or
companies with potential for growth including small company and
international stocks.
6
9
GROWTH AND INCOME EQUITY FUND: Invested in a pool of stock mutual funds
that have a goal of long-term growth and current income. The mutual
funds buy stocks of companies that are believed to be expanding and
that have a history of paying dividends.
INTERNATIONAL EQUITY FUND: Invested in a pool of international stock
mutual funds that have a goal of long-term growth with little emphasis
on current income. The mutual funds buy stocks of growing and
established companies that have their principal business activities and
interests outside of the United States and which show the potential for
growth.
BALANCED FUND: Invested in both stock and bond mutual funds. The mutual
funds use a bond mutual fund investing in high-quality bonds and stock
mutual funds investing in a wide variety of companies.
FIXED INCOME FUND: Invested in a pool of fixed income mutual funds. The
mutual funds invest in short-term, high-quality government and
corporate bonds and other fixed income securities.
MONEY MARKET FUND: Invested in a pool of money market funds. The mutual
funds invest in high-quality government and corporate fixed income
securities with maturities of less than one year.
Pending the acquisition of an investment in an orderly manner for the
Funds, the Trustee (as hereinafter defined) may temporarily hold funds
uninvested or in short-term investments.
The assets of the Plan are held in trust by The Northern Trust Company
("Trustee"). The Benefits Committee ("Committee"), appointed by the
Board of Directors of the Company, as the administrator of the Plan,
selects the investments for each of the Funds. The Committee retains an
independent investment consultant to provide investment advice with
respect to the Funds. The fees charged by the Trustee and the
investment consultant are paid by the Trustee out of the Funds.
A Participant has the right to direct the Trustee to invest his
contributions, but not matching contributions made by the employer
("Employer Contributions"), in 1% increments in any or all of the
Funds.
At December 31, the number of participants in each fund was as follows:
1997 1996
---- ----
HII Common Stock Fund 7,082 9,031
(Allocated and Unallocated ESOP)
Capital Appreciation Equity Fund 4,165 4,966
Growth and Income Equity Fund 4,452 5,094
International Equity Fund 2,776 3,360
Balanced Fund 2,340 2,910
Fixed Income Fund 911 1,118
Money Market Fund 1,772 2,241
All Employer Contributions to the Plan were invested in the ESOP (as
hereinafter defined).
EMPLOYEE STOCK OWNERSHIP PLAN
The employee stock ownership component ("ESOP") of the Plan is a
funding mechanism for a portion of the Employer Contributions to the
Plan. In connection with the ESOP, the Company was party to an ESOP
Trust Agreement between the Company and State Street Bank ("Prior ESOP
Trustee"). The Prior ESOP Trustee purchased shares of the Company's
common stock in open market transactions with funds provided by loans
("Loans") from the Company. The Prior ESOP Trustee completed the
purchases of shares of the Company's common stock in December 1991
after purchasing 18,762,184 shares at a cost of approximately $350
million. At December 31, 1997 and 1996, the balance of the Loans was
approximately $248 million and $269 million, respectively. The Loans
bear interest at a fixed rate of 9.783%. The Loans are expected to be
repaid over a period of up to twenty years. The Trustee has made
approximately $101.7 million of principal prepayments as of December
31, 1997. Consequently, no additional principal repayments are required
until 2006.
7
10
The Company makes periodic cash contributions ("ESOP Contributions") to
the Unallocated ESOP (as defined below) portion of the Trust (as
hereinafter defined). The ("ESOP Contributions"), together with the
earnings received on the investments included in the Unallocated ESOP,
are used to pay principal and interest on the Loans. As debt service
payments on the Loans are made, the Company releases shares of common
stock from the pledge securing the Loans and such shares are available
for allocation to Participants' accounts as Employer Contributions. All
released shares must be allocated to Participants' accounts at
year-end. No allocated shares serve as collateral for the Loans. In
addition to the ESOP Contributions, the Company may elect to make
Employer Contributions to the Allocated ESOP (as hereinafter defined)
in the form of cash which may be used to purchase shares of the
Company's common stock in the open market. Dividend income received on
shares of the Company's common stock that were purchased in the open
market and placed in the Allocated ESOP is not available for debt
service payments.
That portion of the ESOP which has been allocated to Participants
(Allocated ESOP) as Employer Contributions and that portion of the ESOP
which has not been allocated to Participants (Unallocated ESOP) are
presented separately in the accompanying financial statements.
FUNDING
Contributions to the Plan are made by Participants and by the Company
and each subsidiary of the Company that has adopted the Plan. Each
Participant may contribute to the Plan annually an amount equal to any
whole percentage up to and including 6% of his total compensation. This
amount, referred to as the Participant's "Basic Contributions", could
be made up of Pre-tax and After-tax Contributions (as hereinafter
defined), provided that the total amount contributed was less than or
equal to 6% of the Participant's compensation. Employer Contributions
are in an amount equal to 70% of Participant's Basic Contributions.
Each Participant may make excess contributions annually to the Plan in
an amount equal to any whole percentage up to and including 10% of his
total compensation. This amount, referred to as the Participant's
"Excess Contributions", may be made up of Pre-tax and After-tax
Contributions, provided that the total amount contributed is less than
or equal to 10% of the Participant's compensation. The Company does not
match excess contributions.
Participants may make their contributions to the Plan through (i)
payroll deductions (After-tax Contributions), (ii) salary deferral
(Pre-tax Contributions) or (iii) a combination of After-tax and Pre-tax
Contributions.
Pre-tax Contributions made to the Plan by salary deferral decrease a
Participant's income for federal income tax purposes by the amount of
such Participant's Pre-tax Contributions. Pre-tax Contributions are,
however, subject to Federal Insurance Contributions Act withholding
tax.
The maximum amount that a taxpayer may elect to defer as a Pre-tax
Contribution for any taxable year under all cash or deferred
arrangements (such as the Plan) in which the taxpayer participates was
limited to $9,500 in 1997 and $9,500 in 1996. The limit for 1998 is
$10,000, to be adjusted annually thereafter for inflation. If the total
amount of Pre-tax Contributions exceeds the maximum limit during any
calendar year, such excess will be included in the taxpayer's gross
income for the year to which the deferrals relate, and will be returned
to the Participant, plus any income or minus any loss allocable
thereto, by April 15 of the following year.
PARTICIPATION
Any eligible employee upon hire date of the Company may participate in
the Plan as soon as is practicable after employment commences.
Ineligible employees include persons not regularly and principally
employed by the Company, building trades workers under a construction
industry collective bargaining agreement providing specifically for
retirement benefit payments thereunder for such building trades
workers, leased employees, and employees on the payroll of NorAm Energy
Corp. or any of its divisions or subsidiaries. Former Participants who
are reemployed by the Company may recommence participation in the Plan
as soon as practicable after reemployment. Their vesting service will
be reinstated, and any portion of their interest in the Employer
Contributions that was forfeited will be reinstated in accordance with
the terms of the Plan.
8
11
DISTRIBUTIONS AND FORFEITURES
A terminated Participant or the beneficiary of a deceased Participant
is entitled to a distribution of the value of the Participant's entire
account in case of death, disability, or retirement at or before the
fifth anniversary of the Participant's commencement of participation in
the Plan. In case of termination of service for other reasons, a
Participant is entitled to a distribution of the entire value of his
contribution account plus the vested portion of his Employer
Contribution account. Vesting is determined by vesting service years in
accordance with the following schedule:
Vesting Service Vested
Years* Percentage
--------------- ----------
Less than two.......................... 0
Two but less than three................ 20
Three but less than four............... 40
Four but less than five................ 60
Five but less than six................. 80
Six or more............................ 100
---------------------------
* Generally, a vesting service year is each Plan year during
which an employee completed at least 1,000 hours of service.
Any portion of the value of Employer Contributions not vested will be
forfeited. The amount forfeited by a Participant is applied to reduce
the respective Company's subsequent contribution to the Plan.
A terminated Participant receives a lump sum final distribution from
the Plan upon written request any time after such termination but no
later than 60 days from which the terminated Participant attains the
age of 65. If no request is received, an automatic distribution will be
made to the terminated Participant and mailed to his last known address
shortly after the end of the year in which he reaches age 65. Immediate
lump sum distributions are made, however, for accounts which do not
exceed $3,500.
PARTICIPANT WITHDRAWALS AND LOANS
A Participant may make in-service withdrawals from amounts attributable
to his After-tax Contributions. A Participant with less than five years
of service who withdraws Basic After-tax Contributions will be
suspended from Plan participation for six months.
A Participant may borrow against amounts attributable to his Pre-tax
Contributions. The maximum amount that a Participant may borrow from
his Pre-tax Contribution account is the lesser of (i) $50,000, reduced
by the excess, if any, of the highest outstanding balance of loans to
the Participant from all plans maintained by the Company or an
affiliated entity during the one-year period ending on the day before
the date on which such loan is made over the outstanding balance of
loans from the Plan on the date on which such loan is made, (ii) 50% of
the value of the Participant's vested account balance under the Plan or
(iii) 100% of the value of the Participant's Pre-tax Contribution
account. The loans are to be secured by the pledge of a portion of the
Participant's right, title and value of the Participant's vested
account balance under the Plan as determined immediately after the loan
is made. Loans may be repaid over a period of up to five years, except
loans made before January 1, 1994 must be repaid over a period of up to
four years. No loan will be made for a sum of less than $500. Interest
rates are fixed for the term of the loan at the time of loan
origination and ranged from 6% to 10% for loans outstanding as of
December 31, 1997.
DIVERSIFICATION OF INVESTMENTS
A Participant who is 55 years of age or older as of any December 31 and
who has participated in the Plan for at least ten years is qualified to
diversify, in any subsequent calendar year, the investments in his ESOP
account and his Employer Contribution account by transferring up to 25%
of the sum of the balances of those accounts (less any amount
previously transferred) to any of the other Funds. After five years of
eligibility to make such transfers, the maximum percentage increases to
50% (less any amount previously transferred). A qualified Participant
must make this election in the first 90 days of any calendar year
following qualification to diversify. The transfer will be effective on
the last business day in March. Second or subsequent elections will
cause transfers only to the extent the permissible election exceeds
amounts previously transferred.
9
12
TERMINATION OF THE PLAN
The Company may terminate the Plan at any time and must give written
notice to the Trustee. In the event of termination of the Plan, the
assets held by the Trustee under the Plan will be valued and each
Participant will become fully vested in his account.
3. FEDERAL INCOME TAXES
No provision for federal income taxes has been made in the financial
statements of the Plan. The Internal Revenue Service (IRS) determined
and informed the Company by letter dated December 3, 1994 that the
Plan, as amended and restated effective January 1, 1994 (Prior Plan),
was qualified and the trust fund (Trust) established under the Prior
Plan was tax-exempt under the appropriate sections of the Internal
Revenue Code of 1986, as amended (Code). Although the Plan was amended
and restated subsequent to that date, the Committee and the Company's
counsel believe that the Plan was designed and operated in compliance
with the requirements of the Code. As a result, the Participant's
Pre-tax Contributions, up to a specified maximum amount each calendar
year, and the Employer Contributions to the Trust on behalf of a
Participant are not currently taxable to a Participant when made, and
income from any source accruing to a Participant's account is not
taxable when realized by the Trust. The After-tax Contributions made by
a Participant will not be deductible by the Participant. The continued
status of the Trust as a tax-exempt trust and the Plan as a qualified
plan are contingent upon the continuing operation of the Trust and the
Plan in accordance with applicable provisions of the Code.
4. RELATED PARTY TRANSACTIONS
During 1997, the Trustee purchased 1,171,957 shares (valued at
$25,325,767) of the Company's common stock in the open market,
1,092,662 for the HII Common Stock Fund and 79,295 for the Allocated
ESOP Fund. During 1996, the Trustee purchased 1,000,074 shares (valued
at $22,343,873) of the Company's common stock in the open market and
136,363 shares (valued at $2,999,986) of the Company's common stock
from the Allocated ESOP for the HII Common Stock Fund.
During 1997, the Trustee sold in the open market 1,696,958 shares of
the Company's common stock valued at $37,473,072 (cost, $28,631,531)
from the HII Common Stock Fund and the Allocated ESOP Fund. During
1996, the Trustee sold in the open market 677,626 shares of the
Company's common stock valued at $15,396,601 (cost $11,255,910) from
the HII Common Stock Fund and the Allocated ESOP Fund.
During 1997, the Trustee distributed 199,886 shares of the Company's
common stock (valued at $4,228,327).
During 1996, the Trustee distributed 318,751 shares of the Company's
common stock (valued at $7,386,918).
As of December 31, 1997, an aggregate of 29,794,894 shares of the
Company's common stock was held by the Plan, including shares held in
the Unallocated ESOP. As of December 31, 1996, an aggregate of
33,171,359 shares of the Company's common stock was held by the Plan,
including shares held in the Unallocated ESOP. These shares represented
10.09% and 12.62%, respectively, of the Company's common stock
outstanding at December 31, 1997 and December 31, 1996.
During 1997 and 1996, the Plan and the ESOP purchased and sold units of
short-term investment funds managed by the Trustee as temporary
investments, as shown below:
1997 1996
------------ -----------
Plan & ESOP Plan & ESOP
------------ -----------
Purchases $216,664,199 $59,289,695
Sales 226,647,363 68,208,274
See Note 6 regarding transfer of plan assets to a South Texas Project
Nuclear Operating Company Savings Plan.
10
13
5. BENEFITS PAYABLE
As of December 31, 1997 and 1996, the Plan's net assets available for
benefits did not include any amounts due to Participants who had
withdrawn from participation in the Plan.
6. TRANSFER OF PLAN ASSETS TO THE SOUTH TEXAS PROJECT NUCLEAR OPERATING
COMPANY SAVINGS PLAN
In 1997, the Company and the other three owners of the South Texas
Project Electric Generating Station (South Texas Project) completed the
transfer of the Company's responsibilities for operation of the South
Texas Project to a Texas non-profit corporation formed by the owners
and known as the STP Nuclear Operating Company (STPNOC). STPNOC was
formed exclusively for the purpose of operating the South Texas
Project, and certain of the Company's officers and employees who had
been responsible for day-to-day operation and management of the South
Texas Project were transferred to STPNOC effective in October, 1997.
STPNOC created its own savings plan to which Plan assets, in the amount
of $113,850,779, were transferred in October, 1997 which represented
the account balances of participants who have become employees of
STPNOC.
11
14
Item 27a - Schedule of Assets Held for Investment Purposes
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF INVESTMENTS
ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
CURRENT
DESCRIPTION OF ASSET SHARES COST VALUE
-------------------- ---------- -------------- --------------
HII COMMON STOCK FUND
Common Stock - *Houston Industries Incorporated 12,690,013 $ 212,501,542 $ 338,664,722
*Northern Trust Collective 2,003,994 2,003,994 2,003,994
Short-Term Investment Fund
-------------- --------------
TOTAL HII COMMON STOCK FUND INVESTMENTS 214,505,536 340,668,716
-------------- --------------
ALLOCATED ESOP
Common Stock - *Houston Industries Incorporated 4,716,330 88,663,298 125,867,057
*Northern Trust Collective 1,039,573 1,039,573 1,039,573
Short-Term Investment Fund
-------------- --------------
TOTAL ALLOCATED ESOP INVESTMENTS 89,702,870 126,906,630
-------------- --------------
CAPITAL APPRECIATION EQUITY FUND
MUTUAL FUNDS
Acorn Fund 1,648,194 23,077,694 28,002,822
AIM Weingarten Fund Institutional Class 1,261,673 23,781,532 25,094,686
Janus Fund 944,500 24,714,026 23,518,044
-------------- --------------
TOTAL CAPITAL APPRECIATION EQUITY FUND INVESTMENTS 71,573,252 76,615,551
-------------- --------------
GROWTH AND INCOME EQUITY FUND
MUTUAL FUNDS
Davis New York Venture Fund Class A 1,472,825 21,475,833 32,888,163
Dodge & Cox Stock Fund 324,556 25,645,067 28,874,652
Vanguard Windsor Fund 1,840,630 28,785,816 31,253,892
-------------- --------------
TOTAL GROWTH & INCOME EQUITY FUND INVESTMENTS 75,906,716 93,016,707
-------------- --------------
INTERNATIONAL EQUITY FUND
MUTUAL FUNDS
American Funds EuroPacific Growth Fund 404,741 9,801,101 10,531,357
Lazard International Equity Portfolio 653,245 8,637,447 9,125,839
Warburg Pincus International Equity Fund Institutional Class 413,952 6,722,199 6,002,300
-------------- --------------
TOTAL INTERNATIONAL EQUITY FUND INVESTMENTS 25,160,747 25,659,496
-------------- --------------
BALANCED FUND
MUTUAL FUNDS
Acorn Fund 243,062 3,504,492 4,129,631
American Funds EuroPacific Growth Fund 167,723 3,942,085 4,364,159
Davis New York Venture Fund Class A 178,459 2,714,619 3,984,990
Neuberger & Berman Guardian Fund 180,053 5,162,334 4,663,373
Vanguard Fixed Income Securities Fund Short-Term Corp. Portfolio 1,627,208 17,532,562 17,590,116
-------------- --------------
TOTAL BALANCED FUND INVESTMENTS 32,856,092 34,732,269
-------------- --------------
FIXED INCOME FUND
MUTUAL FUND
12
15
Vanguard Fixed Income Securities Fund Short-Term Corp. Portfolio 713,476 7,675,594 7,712,680
-------------- --------------
TOTAL FIXED INCOME FUND INVESTMENT 7,675,594 7,712,680
-------------- --------------
MONEY MARKET FUND
*Northern Trust Collective Short-Term Investment Fund 28,962,593 28,962,593 28,962,593
-------------- --------------
TOTAL MONEY MARKET FUND INVESTMENT 28,962,593 28,962,593
-------------- --------------
TOTAL PARTICIPANT INVESTMENTS 546,343,400 734,274,642
============== ==============
UNALLOCATED ESOP
Common Stock - *Houston Industries Incorporated 12,388,551 231,161,526 330,619,455
*Northern Trust Collective
Short-Term Investment Fund 4,671,858 4,671,858 4,671,858
-------------- --------------
TOTAL UNALLOCATED ESOP INVESTMENTS 235,833,384 335,291,313
-------------- --------------
TOTAL SAVINGS PLAN INVESTMENTS $ 782,176,784 $1,069,565,955
============== ==============
PARTICIPANT LOANS, 6.00% to 10.00%, maturing 1997 through 2001 $ 30,437,985 $ 30,437,985
============== ==============
*Party-in-interest
13
16
Item 27d - Schedule of Reportable Transactions;
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
SUPPLEMENTAL SCHEDULE OF 5% REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
CURRENT VALUE
PURCHASE SELLING COST OF ON TRANSACTION EXPENSE
DESCRIPTION PRICE PRICE ASSET DATE INCURRED NET GAIN
----------- ------------ ------------ ------------ -------------- -------- ----------
SINGLE TRANSACTIONS
None
SERIES OF TRANSACTIONS
Growth and Income Equity Fund
Mutual Fund - Dodge & Cox Stock Fund
(159 Purchases) $ 28,624,035 $ 28,624,835
(100 Sales) $ 23,695,504 $ 19,267,682 23,695,504 $4,427,822
*Houston Industries Incorporated
Common Stock
(10 Purchases) 25,325,767 25,325,767 $ 48,866
(23 Sales) 37,473,072 28,631,531 37,473,072 86,149 8,755,393
*The Northern Trust Company Collective Short-Term
Investment Fund
(356 Purchases) 162,714,397 162,714,397
(401 Sales) 165,478,787 165,478,787 165,478,787
*Party-in interest
14
17
SIGNATURE
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the Plan) have duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN
By /s/ LEE W. HOGAN
----------------------------------------
(Lee W. Hogan, Chairman of the
Benefits Committee of
Houston Industries Incorporated,
Plan Administrator)
June 24, 1998
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23 -- Independent Auditors' Consent Deloitte & Touche LLP
1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-11329 of Houston Industries Incorporated on Form S-8 of our report dated
June 24, 1998, appearing in this Annual Report on Form 11-K of the Houston
Industries Incorporated Savings Plan for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Houston, Texas
June 29, 1998
